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Low interest rates bring concern for home renters

MARK COLVIN: The interest rate is welcome news for home owners, but it does nothing to ease pressure on people who rent.

A housing lobby group is worried that low interest rates may lead to higher rents, as low interest rates attract investors to the real estate market.

Simon Lauder reports.

SIMON LAUDER: Allyson Griffith recently moved house, after the home she rented for nine years was put up for sale. She says the rent had become unaffordable anyway.

ALLYSON GRIFFITH: The rent just kept going up and up and up. There was no point arguing about it because the market will sustain very high rent at the moment and as a renter I'm not in any position to negotiate.

SIMON LAUDER: She now rents a slightly cheaper house in Melbourne's north. She says it was very difficult to find an affordable home for herself and her three children.

ALLYSON GRIFFITH: It was really hard. It was really, really hard. The statistic for affordability absolutely doesn't come into play at all in central Melbourne in any way. So I was looking for somewhere that wouldn't cost more than 60 per cent of my income, which I think already is too high.

SIMON LAUDER: The campaign manager of the group Australians For Affordable Housing, Joel Pringle, says today's interest rate cut will bring relief to people with home loans, but it could make housing less affordable for the one in three Australians who rent.

JOEL PRINGLE: For people who are under the most housing stress, and we're talking about renters here, this really doesn't give any relief at all.

SIMON LAUDER: Is there any correlation between the price of renting a house and interest rates?

JOEL PRINGLE: There's no direct correlation so to say, but what we're concerned about with the current tax settings that we have and with record low interest rates, we're concerned about the return to speculative investment.

What happens if we have speculation without increased housing supply is that house prices go up, and in the medium to long term that means rents catch up and go up as well, meaning that rent increases are going to continue to accelerate.

SIMON LAUDER: The managing director of property advice group SQM Research, Louis Christopher, says he expects house prices to go up as lower interest rates attract more buyers. Mr Christopher says that could actually take the pressure off rents.

LOUIS CHRISTOPHER: Basically, anyone that's using a mortgage to actually buy into a home will see affordability deteriorate.

SIMON LAUDER: What about the investment market? Do low interest rates attract more people looking for investment properties?

LOUIS CHRISTOPHER: Yes, look, good question. Historically, investors have been very momentum-driven. They tend to wait to see house price growth already happening before they jump into the market. This time around, that wasn't the case. The recovery has virtually been driven by investors and I think they've been jumping in because up until now they've been getting good rental yields and good rental growth.

Now, there's been some measurements out of late to suggest that rent's basically now stalling. There's more renters turning themselves back into first home buyers again, or home buyers again, and so it'll be interesting to see how investors do react when they see potentially further house price rises. Will there be less in the market going forward?

For now though, the interest rate cut will spur them on. We will see more investment into the market most likely.

SIMON LAUDER: Renter Allyson Griffith is not convinced low interest rates are good news for her. She believes she'll be at the mercy of the rental market for the forseeable future.

ALLYSON GRIFFITH: The people I see buying properties at the moment are being supported by family to do that. I think there's still a whole dimension of people in my generation, Generation X, who aren't immediately about to purchase properties, and may continue to be priced out of the market.

SIMON LAUDER: Have you heard anything from either of the major political parties that encourages you?

ALLYSON GRIFFITH: Absolutely not, absolutely not. I don't think it's a consideration at all. I think there's a lot of rhetoric, but there certainly isn't any explicit understanding of how people can grow to afford their own homes.